So they created fiat money after the great depression so they can pave the streets with money when needed to prevent the next one. They are just doing that. What am I missing? What is wrong? Should we peg to the gold again? Wasn't the gold the problem during the last depression? What if this actually works?
No offense, but what if monkeys started flying out of my ass? I think 'what if?' is bad policy when it comes to the Federal Reserve deciding to spend trillions of dollars of taxpayer money are particular asset classes, in a truly anti-free market manner, in an attempt to save an economy that's structurally hobbled (not systemically, necessarily).
I'm betting on the side of it working right now - my odds are 90/10 of success. The action they are using right-now is to flood the economy with waves of currency. They have enough wiggle room because: -The Eurozone is a mess: the Euro is on life-support. -China is a disaster and for all intents and purposes is in a depression.(as a back-of-envelope normalization, take their GDP, cut it by 50% and take the YoY multiplier you get for the front-year and regress it back to when they first started buying US debt. They are doing what the US did in 1930.) They can sop-up the excess down the road through any number of taxes, debt issue arbitrage, etc. So Ben used the first tool and is expanding the money supply. The USD crosses get dinged but we have ~110T worth of capital in US balance sheets(households, businesses and govt.(including GDP and treasury)) It's not bad that the USD weakens because US resources, like labor, look more attractive.(read: cheaper) The one thing I'm very curious about is what happens when the Fed's balance sheet eclipses the US govt's.(it's close right now, about 60% of it.) As things stand now the Fed has a higher financial IQ then the sum of all the bodies in the US govt, so I'm ok with it for the time being. Seriously, god help us if treasury was the only thing we had to deal with this mess.
90/10? Wow! Sure would like to be able to fade YOUR odds. So... he drops interest rates to zero (thereby robbing saver of all income), weakens/destroys? the value of our currency (thereby robbing savers of all buying power), creates the environment for all-destroying hyper-inflation... and postpones(?) facing the music now for the chance to face it or an even bigger problem later? I'd rather not have my financial future driven by this jerkwad of a wee man.... And the Bottom Line... it's still all about jobs.... and they will remain on the decline for another 3-5 years. And when they finally rebound, they will be minuscule and painfully slow to recover. We're facing a structural jobs deficit from a "contraction in demand" which will continue until the Boomers die off... 30-40 years. Bernanke's "going all in" now won't change that but will severely hamper our survival. So... what are we as traders and investors to do about all of this? Well, if we can't leave the country to avoid having our wealth destroyed then I guess we're challenged to try to grow our assets faster than Ben and the Gummint can destroy them. I doubt few, if any, of us will succeed.
karl, I find your comments extremely lucid and well-articulated. I think you're hitting on many critical and relevant points in expressing your thoughts about what may happen. However, I believe the biggest issue the global and domestic economy faces right now is job destruction. I really am not confident that anything the government is doing is anything more than borrowing money to inflate government sector employment, and I do not think this counter-measure can even create even one job for every 4 or 5 that are lost in the private sector (and with continued borrowing and spending, that ratio will probably double or triple, if job losses don't at least stabilize). Without private sector job growth, we're screwed no matter how much the government inefficiently spends, even at unsustainable reckless rates. As a secondary issue, what Bernanke announced yesterday, and there will be more such announcements probably, sounds like a Hail Mary pass, and that does nothing but sap confidence and makes the Federal Reserve look quite desperate, IMO. The more they overreach, they more desperate they appear.
Go ahead and fade me, just like all the google bagholder's over 350 did.(search for my thread "Goog Suckers" - it has a blow-by-blow of my moves when goog was around seven hundy and everyone was telling me how wrong I was to bet against them. I'm not perfect but as I've gotten older I've gotten better at knowing when to open my mouth and when not to which just means that I'm more correct on-avg because I don't lose as often.. ) As long as interest rates can be changed the value of money will change. If you're concerned about savings being wiped out move into an asset that retains it's real value better then currency does. It's not the Fed's job to make sure your savings grows - their job is to manage GDP, which most people forget when there is more obvious pain. Keep in mind the Fed is not JUST buying time - they're compartmentalizing the problem: by forcing the economy to inflate they can have measures in place ahead of time to manage the inflation and remove the liquidity. The economy is going to take the path of least resistance and now that path is to inflate, and it will want to like a MF-er. I'm betting they already have controls in-place to suck the dollars back out of the system. I know part of the plan is to keep buying long-term US bonds but I'm expecting other moves that aren't as obvious, which is what I'm really curious about.
ByLoSellHi, go ahead, create some jobs ! I know your pockets are full of $$$$. You have been short at least for 18 month ! You must have earned 7 diggit $$$. I have already done my part ! Established a LLC in NYC ( not Delaware ) and offering some people over there some $$$.
You watch. When it comes time, they will be VERY reluctant to do so.. and if they do it at all, it's likely to be in an ineffective amount. Their excuse will be something like "slowing", or "not wanting to give deflation a chance to take hold"... Seems to me you've got waaayyy too much confidence in the Fed and its wee man behind the curtain.